June 2, 2014

FFII submission: ISDS: A rigged system, avoid lock-in

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FFII submission to European Commission consultation on investor-to-state dispute settlement (ISDS):

This submission concludes that investor-to-state dispute settlement lacks conventional institutional safeguards for independence and has characteristics of a rigged system. The appointment of arbitrators is not neutral and gives the US an unfair advantage. The US never lost an ISDS case, we can not expect European companies to win major ISDS cases against the US, all the more as the US is not shy to exert pressure on arbitrators. We can expect that US companies will win ISDS cases against the EU and member states. This leads to four considerations.

First, ISDS arbitrators will be able to review all decisions of governments, legislators and courts, including the European Court of Human Rights, and they can award unlimited damages. The European Commission aims to add ISDS to trade agreements from which it is near impossible to withdraw. Given that ISDS lacks conventional institutional safeguards for independence, does not observe the separation of powers, has characteristics of a rigged system and gives the US an unfair advantage, the transfer vast powers to arbitrators without possibility of withdrawal would be imprudent. At the very least, to protect its future, the EU has to avoid a lock-in, should not deviate from standing European practice of stand-alone investment agreements. The EU should not add ISDS to trade agreements.

Second, the EU aims to create a global standard. Presently a minority of foreign investments is covered by ISDS, after ISDS agreements between the major capital exporting countries a large majority of global foreign investments would be covered by ISDS. Wide coverage of global foreign investments and impossibility to withdraw would create a near global lock-in. Given that the commission’s reforms fail on many counts, a near global lock-in would give arbitrators unprecedented and unchecked powers. This would burden democracies, local companies, tax payers, human rights and the rule of law.

Third, quintessentially, states need a margin of appreciation. States which are constantly battered by threats and legal challenges can not function properly, can not take decisive action. The US protect themselves through a system rigged to their advantage. It is an existential threat to the EU not to be able to take decisive action, especially since the US can. Raison d’état necessitates to avoid this situation.

Fourth, foundationally, an essential aspect of liberalism is constitutional liberalism – the separation of powers, the creation of strong institutions. Sovereign decisional power accompanied by strong institutions can provide fairness. ISDS undermines the institutions. ISDS undermines the EU’s vital interests and values, it has to be rejected. In doing so, the EU would give direction to the debate and create room to strengthen alternatives.

This conclusion is based on our note “ISDS: A rigged system, avoid lock-in”, which we add as an attachment, also available at http://acta.ffii.org/?p=2118

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The attachment “ISDS: A rigged system, avoid lock-in”: html, pdf

Background:

ISDS gives foreign investors, usually multinationals, the right to circumvent domestic courts and challenge decisions of states for international investment tribunals if decisions may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge privacy measures, challenge environmental and health policies. The cases are decided by for-profit arbitrators, they can overturn decisions of our supreme courts and our human rights court. For an introduction see Nobel laureate Joseph Stiglitz or Vrijschrift.

The European Digital Rights initiative (EDRi) has published a tool and an answering guide for the European Commission’s consultation on ISDS. See here for more answering guides.